Cornell University Cornell Institute for Public Affairs SOCIAL FINANCE AND THE BENEFITS FOR THE RURAL SOUTH:

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1 SOCIAL FINANCE AND THE BENEFITS FOR THE RURAL SOUTH: USING SOCIAL IMPACT BONDS FOR RECIDIVISM AND POVERTY REDUCTION IN RURAL NORTH GEORGIA A CONSULTING PROJECT BETWEEN THE APPALACHIAN RURAL POVERTY INSTITUTE AND THE CORNELL INSTITUTE FOR PUBLIC AFFAIRS Cornell University Cornell Institute for Public Affairs WHITE PAPER AUTHORED BY CLAYTON M. FULLER, DANIEL D. DUNN, AYUEN G. AJOK AND DEOKSHIN LEE EDITED BY DR. MELISSA ANDERSON page 1

2 ACKNOWLEDGMENTS The consulting group would like to thank the following people for their help with and support of the current project: Dr. Laurie Miller, Associate Director of CIPA Public Engagement & Capstone Instructor Dr. Sharon Tennyson, Program Director, Cornell Institute for Public Affairs Thomas A. Rogers, Jr., Board Member, Appalachian Rural Poverty Institute Kevin J. Rooney, Board Member, Appalachian Rural Poverty Institute Kate P. J. Fuller, Board Member, Appalachian Rural Poverty Institute ARPI s Generous Financial Supporters page 2

3 This project is dedicated to the memory of Rev. Dr. Henry King Oehmig whose belief in our efforts brought hope when there was little cause for hope. Let light perpetual shine upon you. page 3

4 TABLE OF CONTENTS Executive Summary Pages 5 Key Takeaways Page 7 Literature Review Pages 8-17 Data and Methodology Page Findings Page Recommendations Page Works Cited and Resources Page page 4

5 EXECUTIVE SUMMARY The Appalachian Rural Poverty Institute (ARPI) and the Cornell Capstone Group partnered to develop a report for implementing an initiative to reduce prison recidivism in rural north Georgia. ARPI is a not-for-profit organization that focuses on research and advocacy efforts for poorer populations in rural north Georgia, as well as support for the rest of the Appalachian Southern Tier. The organization s goal is geared toward fighting poverty through innovative approaches to achieve real change for those caught in poverty. ARPI aims to be an agent of change in north Georgia and is centered on its core values of research, innovation, and empowerment to improve the lives of the rural poor in this region. To implement this initiative, ARPI seeks to use a social impact bond as a funding tool. Social impact bonds (SIB), also known as pay for success programs, are an investment tool used for financing socially beneficial programs with funds provided by private investors in order to produce measurable solutions to social problems that governments and communities face. ARPI and CIPA worked to identify a focus population, establish baselines for analysis, develop an intervention framework, and provide an analysis of both the direct and indirect costs and benefits of implementing such a program. The target population for this initiative was chosen based on our desire to aid communities through interventions focused on at-risk youth. Therefore, our initiative is aimed at providing educational, ministry, and behavioral interventions to young people from ages 17 to 23 in two state-run prisons within ARPI s stated geographical area of focus. The two facilities identified for this initiative include Walker State Prison and Hays State Prison. These two prisons are in close proximity to each other relative to the remaining facilities within the Georgia State Correctional System. Through our research, we designed a program with initiatives for both Hays State Prison and Walker State Prison and used three defined cohorts based on the year of a prisoner s release. The cohorts then went through the program s interventions and we proposed monitoring to provide a base for analysis of the program s success. Additionally, a cost-benefit analysis was performed for both the direct and indirect costs and benefits of the initiative in order to provided evidence of the program s value to the focus area. This analysis also was used to determine what the metrics for success in this program are and what the returns on investment for the project stakeholders would be. page 5

6 For ARPI this research is important in order to determine how beneficial a program such as this is for the target area, both financially and socially. We have determined that although the SIB model is a highly beneficial tool to use for recidivism reduction programs, it may pose some issues for investors and potential service providers because of the rural nature of the project. In order to provide a less risky investing environment to fund this initiative, it may be beneficial to include additional participants in the intervention though incorporating other area prisons in the project. This will improve the chances of success by including a larger number of participants, which will increase the financial benefits more relative to the costs of the program. In other, more urban-based pay for success initiatives, the number of participants served by the programs was much larger and, therefore, the needed break even points for the programs to fund themselves were much smaller. To improve on the chances of success for this program there may need to be either an increase in the financial benefits or a decrease in the financial cost. page 6

7 KEY TAKEAWAYS A social impact bond (SIB) is a contract between private investors and the public sector in which a commitment is made to pay for improved social outcomes that result in public sector savings. Initial SIB projects have been focused on large population centers like New York City, Boston, and Salt Lake City. At the time of publication, there are no known rural SIBs. Governments enjoy the minimal risk involved with SIBs because they shift financial risk to private investors. This project targets two prisons: Walker and Hays State Prisons. The population focuses on at-risk youth ages 17-23, who have been recently released. The research completed for this white paper focused on too narrow of a population. When implemented, the SIB needs a larger population in order to be an economically viable investment. The white paper shows that a social impact bond model can have a successful social impact in rural areas like north Georgia. This social impact bond would save society at least $11,757, Further legislative action is needed to make investors more comfortable with investing in rural areas. Namely, this legislation should ensure that these investments are not subject to capital gains tax at the state and federal level. Additional policy prescriptions include: if metrics are not met and the investors lose out on their investment, statutory changes at the federal level should protect investors by making the investment a tax-exempt donation. page 7

8 INTRODUCTION Background Private investments in socially beneficial, success-based initiatives are a means by which services traditionally provided by government entities can be transferred to other organizations that perform similar activities. In essence, a SIB brings private and market discipline to public problems. This shifting nature in the financial investment market may be perceived as a response to increased demand for new alternatives to the more common and antiquated methods of funding socially beneficial enterprises (Social Impact Investment Task-force, 2014). In response to this demand, the use of the social impact bond (SIB) as a means of providing funds for programs aimed at social benefits in the United States has gained traction in recent years. Also referred to as pay for success programs, SIB initiatives often involve a number of interworking organizations and are aimed at supporting programs for which funding is based on measurements and evidence of success. Such programs encourage cost saving measures for stressed government entities with budgetary issues (Third Sector Capital Partners, 2013). In the United States, governments in the State of New York, New York City, Massachusetts, and Utah have all implemented some form of these pay for success programs. Social impact bonds have been used to fund initiatives in Europe as well. Until recently these tools have not had a strong footing in the United States as a means of funding socially beneficial initiatives (Social Finance, 2012). The basic model for a social impact bond to date has required a government entity (be it municipal, state, federal agency, etc.) to contract with an intermediary organization to provide social services. The intermediary must first raise the funds necessary for services before the program can be implemented. These funds must come from other, non-governmental sources such as private investors, who will then receive a return on investment based on the performance of the program. Government payment will be made to both the intermediary and investors based on measured success of interventions provided by service providers contracted in the program (Liebman & Sellman, 2013). If the performance goals for the program are not reached, no funds need to be distributed by the contracted government agency. page 8

9 FIGURE 1. FRAMEWORK FOR A SOCIAL IMPACT BOND TAKEN FROM LIEBMAN & SELLMAN, 2013 Pay for success programs are an attractive tool for government entities, service providers, and investors for number of reasons. As a tool for improving social outcomes, the SIB framework supports innovation on the part of the intermediary organization to examine new ways for improving the performance of the systems they work within. For example, the social impact bond used to fund the Massachusetts Juvenile Justice Pay for Success Initiative allowed the intermediary organization to partner with an organization whose program specialized in services specifically devoted to atrisk young men from age 17 to 24 (Third Sector Capital Partners, Inc., 2013). Such a narrow focus may not have received as much attention in a traditional state-based prison recidivism reduction program. Governments enjoy the minimal risk involved with SIBs because they shift financial risk to private investors. This not only allows for an evidence-of-success-based system to determine payouts but may also loosen capital restrictions allowing for additional budgetary flexibility. Private investors look forward to an opportunity to get involved in providing funds to improve on social capital while still having the opportunity to further their own financial interests through possible returns on their investments. Service providers and philanthropies may be drawn to these programs largely based on the stability of the program models, which provide a framework that specifically outlines and defines what success based on the interventions provided should look like. For service providers, there is also the added benefit of long-term agreements which provide further organization stability and the opportunity to hire additional staff members (Liebman & Sellman, 2013). THE CURRENT PROJECT In developing a framework for the implementation of a pay for success initiative or an SIB, Liebman and Sellman have suggested that there are several areas of analysis and formulation needed for proper methodology and program analysis (Liebman, 2013). These areas largely fall within general topics such as data analysis and structural development. Regarding structural development, beneficial social outcomes and metrics of achievements page 9

10 are negotiated between the government entity and the intermediary contractor. Private investors can be included in these negotiations. Financial investors may be asked to take part in some or all of the funding for the initial intervention; this risk can be taken on by one or multiple investing parties. The tasks listed in the data analysis section of this paper are most important to our current research. Data analysis includes choosing a target population, analyzing historical baselines, modeling the intervention framework, conducting a cost-benefit analysis, and establishing financial models. In these tasks it will be imperative for the project to focus on providing the most accurate information possible. An analysis of historical recidivism trends, target population statistics, and past performance of specific intervention service providers will aid in developing an evaluation methodology that will be used to in determining the success of the program (Liebman& Sellman, 2013). The current project seeks to reduce prison recidivism rates in rural north Georgia with a chosen target population of at-risk youth between the ages of 17 and 23 who have served time in one of two Georgia State Corrections facilities. The two facilities focused on, Walker and Hays State Prisons, were chosen in part due to their proximity to each other within ARPI s operating area. Walker State Prison is a medium security facility with an inmate population capacity of 444 prisoners. The facility is largely based on providing a more pro-social and programmatic environment for inmates to improve on their moral character. Walker provides several programs and services with educational, vocational, and counseling services (Georgia Department of Corrections, 2014a). Hays State Prison is a much larger facility with the ability to house up to 1,500 inmates and has a closed security level. The facility is more structured in its programming and is mostly focused on recidivism reduction and public re-entry programs. Hays State Prison (Trion, Georgia) Walker State Prison (Rock Spring, Georgia) Total Inmate Capacity 1, Security Level Closed Medium Programming Provides academic, recreational, religious, and vocational programming as well as counseling Provides academic, recreational, religious, and vocational programming as well as counseling Average Recidivism Rate for 45.2% 36.6% inmates ages 17 to 23 ( ) Table 1. Summary Information for Hays and Walker State Prisons based on information gathered from the Georgia Department of Corrections page 10

11 MAJOR PRISON RECIDIVISM SOCIAL IMPACT BOND PROGRAMS The use of social impact bonds for reducing recidivism rates in prisons is still a fairly new idea. There are only a few initiatives in existence that can be used for analysis of program design. Although social impact bonds are novel programs, we studied four cases of prison recidivism SIBs in order to gain an overview of the different methods that have been used in the implementation of these programs. These cases were then used to provide background information for the development of an intervention framework and evaluation methodology. It is important to note that the majority of these programs still have time remaining prior to any final evaluations and disbursement of funds by the contracted governments. However, each of these programs has reached the success levels needed to continue past their initial evaluation points, which if not met would have ended the programs. Peterborough The Peterborough SIB is the brainchild of Social Finance, UK, which was founded in January 2007 as a nonprofit organization dedicated to mobilizing investment capital to drive social progress. Social Finance and the city of Peterborough, located in eastern England and with a population of nearly 185,000, launched the world s first SIB in partnership with the UK Ministry of Justice (MOJ) in The focus of the Peterborough SIB is to cut down the re-offending rates of short-term adult male prisoners released from Her Majesty s Prison (HMP) Peterborough. The intervention focused on male adults (age 18 and above) who received a sentence of less than 12. The historical re-offence rate for this population was high because 60% of the 40,200 short-term adult males sentenced to serve in the UK prison system reoffend within 12 months of discharge. The parties involved in the Peterborough SIB believed that initiatives focused on reducing this number would result in significant savings to the British taxpayer. With the social problem identified, the group began to explore financing options for the intervention. The original private investors for the Peterborough SIB were generally charitable trusts and foundations, including: the Barrow Cadbury Charitable Trust; the Esmee Fairbairn Foundation; the Friends Provident Foundation; the Henry Smith Charity; the Johansson Family Foundation; the Lankelly Chase Foundation; the Monument Trust; the Panahpur Charitable Trust; the Paul Hamlyn Foundation; and the Tudor Trust (Nicholls & Tomkinson, 2013). The initial asset contribution was nearly 5 million pounds. Once the financing was secured, the parties began to define how the SIB would work. First, if the predetermined social improvement was attained through the intervention, in this case a reduction in the number of ex-inmates returning to prison, the Ministry of Justice would be contractually required to repay the investors and also provide a return on the initial investment. Specifically, repayment was based on the effectiveness of the interventions and the reduced reconviction rates of three HMP Peterborough cohorts matched with a comparison group of page 11

12 prisoners with similar backgrounds from similar prisons (Nicholls & Tomkinson, 2013). The reconviction rates were calculated and restructured based on a one-year period after prison release. The intervention divided participants into three treatment cohorts consisting of approximately 1,000 prisoners, where prisoner recidivism rates were monitored for no less than one year for each cohort. However, an issue pertaining to the release of short-term prisoners exists when it comes to the time period, which may result in fewer than 1,000 participants in each cohort. Statistics for the number of reconvictions in both the HPM Peterborough cohorts and the comparison groups from similar prisons were drawn from the Police National Computer (PNC) database for the same time period and paired based on characteristics such as criminal history,age, and ethnicity. Those in the Peterborough prisoner test group were then compared to ten offenders with similar characteristics. The method of pairing the Peterborough re-offending data with data in the PNC database was anticipated to take up to six months and conclusions were projected to be released in August 2014; however, at the time of publication the results were delayed. Returns on investment were paid only if the reduction in the total amount of reconviction occurrences was 10% or greater than any advance in the comparison group (Nicholls & Tomkinson, 2013). Specifically, if a 10% decrease was not accomplished for any of the three HMP Peterborough cohorts, then returns would be paid only if a 7.5% decrease was accomplished for the three-year average of the treatment cohorts by the end of the testing period. Otherwise, no repayment on investment would be made. The parties in the Peterborough SIB intervention brought in independent entities for monitoring and evaluation. The University of Leicester and a non-profit known as QinetiQ were selected to perform this function (Cave et al., 2012). Through the use of Propensity Score Matching (PSM) methodology, the independent assessors set up the comparison group and estimated the basic level recidivism occurrences for the comparison groups. These were then compared to the three Peterborough cohorts. The total rate of change in recidivism occurrences was accepted by the Independent Assessor to estimate the overall amount of return based on an agreement between the MOJ and Social Finance (Nicholls & Tomkinson, 2013). If the Peterborough SIB decreased the prison s recidivism rate by at least 7.5%, social investors could expect at least a 2.5% return on investment to be paid by the MOJ. The greater the magnitude of the decrease in recidivism beyond the base level, the more the private investors should expect in returns. The entire return on investment was provided by the government and covered at 8 million pounds, with a return to private investors capped at a 13% annual internal rate of return (Nicholls & Tomkinson, 2013). The 2008 sample data consists of 51,271 cases including 761 from HMP Peterborough and 50,510 cases from other prisons in the United Kingdom. This data also consisted of only unique page 12

13 individuals accepted by MOJ (Cave, Williams, Jolliffe, & Hedderman, 2012). The reconviction rate calculation was described as the sum of the total amount of reconvictions during 12 months since the release of an offender from prison. Participation in the interventions from HMP Peterborough was 694 prisoners. This was compared to 6,591 prisoners identified as having similar backgrounds from similar prisons. The 694 prisoners from HMP Peterborough amounted for 1,140 total guilty sentences during the study period, an average of 1.64 per inmate. This data was matched to the 11,303 total reconvictions for the 6,591 prisoners from other prisons, an average of 1.71 per inmate (Cave et al., 2012). Returns on this inaugural SIB are just starting to come in. According to QinetiQ and the University of Leicester, the HMP Peterborough SIB did not achieve the target re-offending reduction rates to trigger rewards to private investors. The study shows a reduction in reconviction of 8.4 percent compared to a matched control group, not reaching the required reduction in reconviction rates of ten percent in order to fulfill any return on investment. Data analysis from QuientiQ and the University of Leichester also suggests that for every 100 prisoners who participated in the SIB funded interventions in Peterborough there were 142 reconvictions. Based on the same metric, the comparison group had 155 reconvictions per 100 prisoners. Nevertheless, there may still be a possibility for 17 private investors to receive repayment and returns on their investment in This possibility may only come to fruition if the program is able to average a decrease in recidivism occurrences of at least 7.5% through the first and second cohorts in the study (Birkwood, 2014). The Peterborough SIB project could offer some lessons learned. In other SIB interventions, the government partner has had a role in the selection of intervention service providers. However, in this case, the government left the task of determining the selection of the service provider to the intermediary partner, Social Finance, and did not maintain any real relationship or authority structure over the intervention service provider (Nicholls & Tomkinson, 2013). RIKERS ISLAND SOCIAL IMPACT BOND In August 2012, Goldman Sachs Urban Investment Group (UIG) announced the first SIB in the United States in which it provided a loan of $9.6 million to support the delivery of therapeutic services to 16 to 18 year olds incarcerated on Rikers Island in New York (Olson and Phillips). When Goldman Sachs announced its initiative, the company began seeking partnerships in order to make the project successful. Goldman Sachs partnered with the City of New York, MDRC (a nonprofit research organization formerly known as the Manpower Demonstration Research Corporation), the Osborne Association, and Bloomberg Philanthropies, to leverage high-quality nonprofit capacity, private-sector capital, and philanthropic support to address the challenge (Olson & Phillips, n.d.). The parties involved in the New York City SIB project performed a number of different roles in response to the conditions of the SIB agreement (Rudd, Nicoletti, Misner, & Bonsu, 2013). Initial investments in the project came from UIG, which contributed the $9.6 million to the intermediary organization, MDRC, to provide interventions and services to reduce prison recidivism rates. In page 13

14 order to provide a safer investing environment, Bloomberg Philanthropies provided a grant of $7.5 million to be used as a means of repayment if the program were to fail (Rudd et al., 2013). The Osborne Association (Osborne) and Friends of Island Academy (Friends) were brought in as service providers for the interventions in the prison, while the New York City Department of Corrections was responsible for payment on the investment if the program was successful. Coordination responsibilities and efforts were largely tasked to the intermediary organization; however, the New York City Mayor s office also contributed, largely in negotiations and contracts. Evaluation of the program was done through an independent evaluator, The Vera Institute of Justice (Rudd et al., 2013). The financing provision of the Rikers Island SIB project for inmate therapeutic services was viewed as a unique opportunity by UIG largely because it provided an opportunity for the organization to double its bottom line investing while funding socially beneficial programming to improve the lives of adolescents imprisoned at Rikers Island. UIG expected to earn a modest return on investment in line with traditional community development financing products. Also, UIG saw SIB transactions as an opportunity for Goldman Sachs to make a significant contribution to the development of a new financial instrument with the potential to transform the way service providers, governments, and financial institutions collaborate to address pressing social issues with evidence-based interventions (Olson & Phillips, n.d.). The loan, which was provided by UIG, was structured as a $9.6 million multiple-draw term loan to MDRC, an experienced intermediary known for bringing together public and private funders to test new policy ideas. MDRC has used the proceeds of the loan to provide funding to the service provider, the Osborne Association, which has extensive experience in providing services to incarcerated youth. MDRC, through a contract with New York City, was tasked with oversight of the pilot project implementation and was also responsible for any payments to UIG. In addition, the Vera Institute of Justice, an independent and nonpartisan not-for-profit center for justice policy, was assigned to serve as the evaluator of the program, with the goal of measuring the extent to which the program reduced the rate of recidivism among participating Rikers Island inmates (Olson & Phillips). Furthermore, The New York City Department of Correction (DOC) became interested once the initiative proposed by the mayor became viable. The DOC anticipated implementing a large-scale program for adolescents incarcerated at Rikers Island, with the goal of reducing future recidivism and better preparing them for release during their stay (Rudd et al., 2013). Experience from the Rikers Island SIB led to several key conclusions about the implementation of a pay for success initiative. One of the most important conclusions was that strong partnerships are needed for SIB arrangements to be effective. In the case of New York s SIBs, the Mayor s Office built strong relationships to secure the support of various agencies. The Mayor s Office acknowledged that SIB interventions must be supported by evidence, appropriate for the service environment, and capable of being expanded to a large scale. page 14

15 This mechanism was featured and made appropriate to the changing population on Rikers Island. Additionally, the program needed to be pilot-tested at full scale so that it could attract investors. In this case, investors would be able to contribute to the SIB by funding the pilot project. On the other hand, investors could expect return on their revenue when the project was effectively and efficiently implemented. Therefore, investors would then be likely to take on a project that would allow for more innovative programming. However, the pilot project required time and money, which are constrained in SIB arrangements (Rudd et al., 2013). THE MASSACHUSETTS JUVENILE JUSTICE PAY FOR SUCCESS INITIATIVE In January of 2014, the Commonwealth of Massachusetts announced the establishment of the Massachusetts Juvenile Justice Pay for Success Initiative (MAJJ PFS) which was implemented to reduce recidivism rates of at-risk male youth and was the first state-led initiative using the pay for success or SIB model (Commonwealth of Massachusetts, 2014). In partnership with the Commonwealth of Massachusetts, Third Sector Partners and Roca Inc., along with a number of funding partners, implemented a model that would follow participants through four years of intensive programming followed by another two years of follow-up evaluations (Third Sector Capital Partners, Inc., 2013). Roca has provided services for at-risk youth populations for over 20 years, and their programming model largely focuses on the reduction of recidivism and increasing employment among these populations (Kodali, Grossman, & Overholser, 2014). The model Roca used in this initiative focuses heavily on relationships between the youth and adults as well as targeted programming aimed at providing a basis for education, life skills, and employment. Overall, the goal of the relationships and interventions used in the Roca model is to reduce violence and create positive change in the lives of at-risk youth participants in the initiative. In 2012, Roca and Third Sector Capital Partners conducted a pilot study to determine the effectiveness of the Roca intervention model and provide a baseline for the potential pay for success program. The impact of the Roca and Third Sector intervention was largely determined by the recidivism rate of the program participants within the program time frame. The data generated for this and other measures of success are based primarily on historical data as well as counterfactual comparison tests. Roca and Third Sector actually used a number of different counterfactual tests to measure the success of MAJJ PFS, including a self-to-self comparison (a historical comparison), a cross site counterfactual test (a comparison of the target site to those with similar attributes), and a random assignment counterfactual (Third Sector Capital Partners, Inc., 2013). In examining the impacts of the intervention, the program also evaluated how well participants perform after they are no longer in the more intensive portions of the program. This long-term focus in the MAJJ PFS initiative allowed for better determination of how successful the program was. Of the 409 at-risk youth served by the Roca intervention model, 73% had no new arrests and 67% had no new technical violations in 2012 (Third Sector Capital Partners, Inc., 2013). page 15

16 Several important conclusions have been reported by the intermediary organization, Third Sector Partners, with regard to implementing a program aimed at providing social benefits through the use of SIBs; these lessons are largely based on the organization s experience with the MAJJ PFS initiative. First, as an intermediary, Third Sector concluded that intermediary organizations need to work for the project as a whole, rather than focusing on one stakeholder (Kodali et al., 2014). This seems intuitive, but it is important when defining the different facets of the project. As the intermediary, Third Sector also found that privatizing their approach to contracting, or working with each stakeholder independently, was not an effective method because of the levels of knowledge each stakeholder organization has. Therefore, Third Sector moved to a multi-party management system, which added some complexity but provided better guidance for the project. Similarly, Third Sector indicated there needs to be a high level of commitment to the pay for success initiative as well as a means by which to catalyze the pace of negotiations (Kodali et al., 2014). Though these conclusions are listed separately in the case study it may be that both goals can be reached through increased motivation to provide these initiatives with the proper funding and services. Largely, the lessons learned in the early implementation of SIB programs and initiatives should lead to a greater amount of information about where resources can be gathered and accessed. page 16

17 NEW YORK STATE S WORK FOR SUCCESS PROGRAM After the initial implementation of the Rikers Island SIB program, New York State announced another prison recidivism social impact initiative. The project was a partnership between Social Finance U.S., the Center for Employment Opportunities, and parole officers in the State of New York. Similar to the Massachusetts Juvenile Justice Pay for Success Initiative, this initiative uses both job training as well as therapeutic services geared toward individuals in New York City and Rochester. The methodology of the program relies largely on the randomization of 2,000 eligible individuals into blocks and sub-blocks that focus on location and treatment/control groups. Information on participants in the treatment groups was sent to Social Finance U.S., parole officers, and the Center for Employment Opportunities for evaluation. Those inmates chosen to be in the control group went through the standard procedure for the NYS Parole system (New York State Budget Department, 2014). Parole officers in the treatment groups informed their parolees that participation in the intervention services from the Center for Employment Opportunities was a condition of their parole, though participation was not mandatory and a lack of participation would not constitute a violation of parole. The Center for Employment Opportunity intervention model first implemented a five-day training session on life skills. This training focused on the expectations for program participants in the workplace as well as skills used in the interview process. Next the initiative focused on providing parolees with employment, starting with short-term transitional employment. The intervention then moved to placing parolees in unsubsidized jobs and providing them with job retention training and support. Outcomes for the initiative and the overall measure of performance of the program were based on recidivism rates, employment, and engagement in transitional jobs, which in combination represent the cost savings measures for the prison and corrections system, as well as possible gains to the community. At the conclusion of this stage of the initiative, the calculations of these metrics will then be compared to matched historical trends, which is a methodology matching the outcomes of individuals in the intervention groups with comparable individuals released prior to the start of the project as a means of measuring the intervention s effectiveness (New York State Budget Department, 2014). page 17

18 DATA AND METHODOLOGY Based on cases in the literature review, the methodology for the SIB in this project is aimed at analyzing the potential impacts of a SIB for the targeted prison population in rural north Georgia. In this methodology, we identified potential intervention service providers, established a potential intervention and monitoring framework, developed an evaluation and success matrix, described the cost-benefit analysis used, determined financial risk and a repayment schedule, and described the methods by which data was collected. SERVICE PROVIDERS In order to initiate the use of a SIB, there is a need for contracted service providers to provide interventions, education, and/or therapies aimed at reducing recidivism among the newly released inmates within the focus parameters. To determine what organizations to contact, our group first identified what services were necessary to achieve the base goals of the project. We then reviewed the past performance of each organization in order to provide the most effective intervention for the project. Past studies have focused on behavioral therapies (i.e. Rikers Island) while others have depended on job training, education, and skill building as well as different therapeutic methods (i.e. Massachusetts Juvenile Justice Pay for Success Initiative and the New York State Pay for Success Initiative). The services provided in many pay for success initiatives are often based on voluntary inmate participation and provide a number of interventions aimed at reducing recidivism and improving employment prospects after participants finish a program. These interventions are determined by the particular initiative and the partners involved. We determined that the current SIB initiative interventions should include a combination of technical employment training, cognitive/behavioral therapy, and a spiritual component. We agreed that this approach would provide the best poverty relief in the target population when participants were released from prison. After we discussed the desired intervention services, potential service providers were sent Requests for Quotation in order to determine the price of services; this is similar to what was done in the Rikers Island SIB, in which the Osborne Association and the Friends of the Island were eventually chosen (Rudd et al., 2013). Based on the rural nature of the current initiative, there may be a lack of service providers with the desired attributes within the immediate area. ARPI has indicated that in order to alleviate this problem, intervention service providers may be found outside of the immediate area and it may be beneficial to contact organizations that have worked on similar projects in the past. Given the differences in the size and scale of the current initiative as compared to previous ones, service providers will likely have additional needs such as the ability to travel between the two prison cites and address the needs of the medium versus closed security of the two prisons. Selection of potential service providers to contact is currently underway. page 18

19 POTENTIAL INTERVENTION FRAMEWORK Cohort evaluations for both Hays and Walker State prisons will have three defined groups for intervention and monitoring purposes based on the year when a participating inmate is released. Each cohort will begin in year one of the program and be monitored for three years for potential recidivism followed by another two years of monitoring in order to measure and report employment status and retention. Over the three years in which participants in this initiative are monitored, two total years will be spent participating in the recidivism reduction interventions, which will encompass behavioral therapies, spiritual interventions, and employment/job training efforts. These three areas of intervention focus werechosen based on lessons learned from past prison recidivism reduction efforts. FIGURE 2. MODEL FOR INTERVENTION AND MONITORING One area that will need to be addressed in the employment retention portion of this study is the availability of jobs for intervention participants and determining what sectors future job opportunities may come from. It may be likely that initial partnerships between the intermediary organization and employment providers willing to accept participants in this intervention will need to be established prior to any monitoring of employment retention. This may pose some difficulties based on general perceptions of people convicted of crimes as well as the overall lack of employment opportunities in rural regions of the Southeastern United States. In choosing service providers for employment and job training, it will be beneficial to determine any potential connections these partnering organizations may have with potential employers. page 19

20 EVALUATION AND SUCCESS MATRIX Previous studies have indicated a number of different methodological processes that may provide a structural framework for analyzing the effectiveness of interventions funded by SIBs. Such methods included comparing the reduction in days spent in specific prisons by a participant compared to the historic rates of recidivism said prison has experienced, comparing the recidivism rates of the prisons participating in an intervention across an entire corrections system, or a combination of recidivism statistics and employment statistics after a participant has been released from prison (Third Sector Capital Partners, 2013; Rudd, Nicoletti, Misner, & Bonsu, 2013; New York State Budget Department, 2014). To determine success in the current study it was decided that the treatment groups in this SIB will be compared to the historic recidivism trends for Hays State and Walker State Prisons as single entities. This means each prison s performance will be compared to its own historical trends. Additionally, the total reduction in recidivism based on the interventions will be compared to the base cohort recidivism for the entire state. These calculations will take the state s average recidivism rate and compare it to that of both Hays and Walker State prisons together. In order to provide a metric to define success in reducing the recidivism rates funded by a SIB, costs and benefits need to be taken into account. The cost-benefit analysis was done using data collected by the Georgia Department of Corrections (DOC). This analysis took into account the marginal costs per inmate per year, as well as the cost of interventions and education provided by the contracted service providers. Using these two cost metrics, a target reduction percentage in recidivism was calculated. The percentage reduction in recidivism allowed us to determine how cost effective the interventions would be. In order for the interventions to be able to fund themselves, their cost needed to be lower than the savings experienced by the DOC, the state of Georgia, and society at large. In this analysis, the benefit is the decreased operating costs experienced by the DOC, the decreased operating costs for the criminal justice system, and any potential societal benefits experienced as a result of the interventions. Recidivism trends for the current analysis were provided by the DOC based on the ime period from 2007 to These statistics are based on a prison age cohort ranging from and are separated according to the individual prisons themselves. In the year 2013, the marginal cost per prisoner per year was $2,103 in state prisons (Deal, 2014). This is lower than costs have been in the past, likely due to current initiatives to reduce the overall costs of the prison system in recent years (DOC, 2013; Owens 2012). Once the metrics for success were determined, the next step was to determine how participants in the program were monitored. The DOC monitors cohort reconvictions on a three-year basis starting at the day of initial release. This may likely be the most reasonable page 20

21 means by which to evaluate the overall reconviction/recidivism rates for participants in the current initiative. It may also be beneficial to monitor the number of days within the three-year period that a reconvicted participant spends in prison to determine a daily cost value. A daily cost value metric was used in a number of the cases reviewed because some participants were readmitted to prison after completing their programs but for periods of less than one year (Third Sector Partners Inc., 2013; Rudd et al., 2013). Similar to the Massachusetts Juvenile Justice Pay for Success Initiative, the programming for this social impact bond focuses on job training for the participating population (Third Sector Capital Partners Inc., 2013). Therefore, another monitoring procedure to be considered is how well the initiative participants can maintain employment after the initial interventions have concluded. This procedure is in line with the poverty reduction goals of the initiative. COST-BENEFIT ANALYSIS Determining whether or not to implement a SIB for recidivism reduction in rural north Georgia requires examining a number of variables that must either be described as costs or benefits of the program. These variables were identified and then defined based on available data that provided some monetary value for their presence in the cost-benefit analysis. The costs and benefits in the analysis done for the feasibility of this project were either direct or indirect. Costs and benefits that had observable monetary effects on the intervention, such as the costs of the service providers or the benefit of reduced recidivism, were labeled as direct costs and benefits. The values that could not be directly observed monetarily, such as the benefits of reduced crime rates, were labeled as indirect costs. Using a net present value matrix, the summation of the present value of the costs subtracted from the summation of the present value of the benefits, we determined the overall benefit of the intervention. These calculations were done using Microsoft Excel. The values of the cost and benefit variables were assigned a depreciation value based on the number of years the program would monitor participants and the inflation rate given to the U.S. dollar for the monetary values. The net present value (NPV) framework is shown by the figure below: NPV = PVbenefits - PVcosts PVbenefits = [B0 + (B1/(1+r)) + (B2/(1+r)2) + (B3/(1+r)3) + (B4/(1+r)4) + (B5/(1+r)5) + (B6/(1+r)6) + (B7/(1+r)7)] PVcosts = [C0 + (C1/(1+r)) + (C2/(1+r)2) + (C3/(1+r)3) + (C4/(1+r)4) + (C5/(1+r)5) + (C6/(1+r)6) + (C7/(1+r)7)] page 21

22 The number of variations of the cost and benefit present value calculations was based on the total number of years the intervention would take to reach its conclusion based on the preliminary intervention framework described in a prior section. The definitions of costs and benefits are provided in a later section of this report, which further describes the process by which this analysis was conducted. RISK DETERMINATION AND REPAYMENT SCHEDULES Finally, in order to provide an incentive for investors to contribute funds to the proposed SIB, we needed to provide an analysis of risk. This particular analysis was conducted following the cost-benefit analysis and after the metrics for success were determined. The risk analysis established the possible rate of return as well as the payment schedule for bond repayment based on meeting the cost saving measures put forth in the cost-benefit analysis. There will likely be a point where the partnered government entity will cap the amount of money to be repaid to investors in this initiative. DATA COLLECTION In the current project a number of different data collection processes have to be taken into account. In working to design a social impact bond for a program focused on the reduction of recidivism rates in Walker and Hays State Prisons for prisoners years of age, the first set of data needed are historic recidivism rates in each of the two facilities as well as other facilities around the state. These statistics will be used to form comparisons to historical trends and to provide a basis for the analysis of costs and benefits. In order to obtain this data, we contacted the DOC electronically and submitted a request. Also, costs per inmate per day/year for the prison systems were needed in order to perform the cost-benefit analysis and to determine the metrics for success. We obtained this data through the year 2013 budget proposed by the Governor of Georgia, Nathan Deal. We also needed to collect data about the intervention service providers being considered for the SIB program. These providers and the costs of their services represented a large portion of the direct costs in the cost-benefit analysis. We then sought out service providers with similar interventions to those examined in the literature review. Because our intervention model consisted of three areas of focus, it was important to find service providers that had experience in a number of different intervention techniques. Finally, we collected the information needed to develop a financial framework for the program. Our group was put in contact with a member of Social Finance U.S., the nonprofit organization discussed earlier in this paper, which is the United States-based arm of the Social Finance U.K. and the organization that developed the SIB idea. Social Finance has worked on similar projects in the past, and consulting with them gave us a better understanding of the premise behind the financial model, risk assessment, and payment scheduling for investors in these particular types of projects. Similar information was also found in the materials used in the literature review. page 22

23 DEFINITIONS OF COSTS AND BENEFITS In order to establish indices for evaluating the success of this study, it was important to establish what the costs and benefits of the intervention would likely be. In this section, we first addressed and defined the costs and benefits for our initial cost-benefit analysis. Some of the variables do not have direct measurable monetary values based on their more social and demographic characteristics. Establishing the values of these particular variables through additional literature research helped to further the development of other indices which will be used in later portions of the SIB. Below are the tables pertaining to the potential costs and benefits for the current SIB initiative: Costs Cost for intervention service providers Incurred costs to employers Table 2. Definition of Costs Benefits Reduced Marginal Costs for State Prison System Lower Community Crime Rates Employment Retention/Potential For Economic Gain Table 3. Definition of Benefits Definition of Costs The monetary cost of the intervention services based on fees for services and employee wages for each of the partnered organizations. Costs to employers suggest the costs of training for employees. Definition of Benefits The reduction in marginal costs to the Georgia State Department of Corrections (DOC) as a result of the interventions in this program can be measured based on the number of days each of the participants in the program stays out of prison. Based on the effects of the intervention, it can be assumed that if there is a significant impact on the participating population then there will also be lower crime rates, which are a benefit to society. Prolonged employment retention for individuals participating in this program can be measured by the total amount of time a participant remains employed and are a metric for success in this intervention. page 23